ATOSSA THERAPEUTICS, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act).   Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or furnished under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our Company's reports filed or furnished under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.   Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.    Management ’ s Annual Report on Internal Controls   Our management is responsible for establishing and maintaining adequate internal control over financial reporting (pursuant to Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.   Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the Framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022. Because we are a smaller reporting company, BDO USA LLP, our independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting.   Changes in Internal Control Over Financial Reporting      There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during quarter ended December 31, 2022, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.   ITEM 9B. OTHER INFORMATION   None.   ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   Not applicable.   39 Table of Contents   PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   Information regarding our executive officers is set forth in Part I, Item 1 of this Annual Report under the caption “Information about our Executive Officers.”   Except as indicated below, the other information required by this item is incorporated herein by reference to the sections entitled “Proposal No. 1 — Election of Directors,” “Delinquent Section 16(a) Reports,” as applicable, and “Board Committees” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be held on May 4, 2023 (the Proxy Statement).   We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Conduct is posted on our website located at https://atossatherapeutics.com/investors/ under “Governance.” We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.   ITEM 11. EXECUTIVE COMPENSATION          The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” in our Proxy Statement.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   The information required by this item is incorporated by reference to the sections entitled “Executive Compensation- Equity Compensation Plan Information" and “Beneficial Owners and Management” in our Proxy Statement.   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance” in our Proxy Statement.   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   The information required by this item is incorporated by reference to the sections entitled “Proposal No. 2 — Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement.     PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   (a) The following documents are filed as a part of this Annual Report:     1. Financial Statements     Report of Independent Registered Public Accounting Firm   42 Consolidated Balance Sheets 43 Consolidated Statements of Operations 44 Consolidated Statements of Stockholders' Equity 45 Consolidated Statements of Cash Flows 46 Notes to Consolidated Financial Statements 47   2. Financial Statement Schedules   All financial statement schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.     3. Exhibits   See the Exhibit Index set forth on page 57 of this report.   ITEM 16. FORM 10-K SUMMARY   None.   40 Table of Contents     ATOSSA THERAPEUTICS, INC.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   Audited Consolidated Financial Statements:       Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Seattle, Washington; PCAOB ID# 243 ) 42     Consolidated Balance Sheets 43     Consolidated Statements of Operations 44     Consolidated Statements of Stockholders’ Equity 45     Consolidated Statements of Cash Flows 46     Notes to Consolidated Financial Statements 47   41 Table of Contents       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Report of Independent Registered Public Accounting Firm     Shareholders and Board of Directors Atossa Therapeutics, Inc. Seattle, Washington     Opinion on the Consolidated Financial Statements   We have audited the accompanying consolidated balance sheets of Atossa Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.   Accounting Treatment of the Investment in Equity Securities   As described in Note 4 to the consolidated financial statements, the Company holds an investment in equity securities that has a balance of $4,700,000 at December 31, 2022. This investment was acquired during the year through an initial deposit of $2,700,000 on July 2, 2022 and a final payment of $2,000,000 on December 23, 2022.   We identified the accounting treatment of the investment in equity securities as a critical audit matter. The principal considerations that led to our determination are certain complexities within accounting principles generally accepted in the United States of America when determining the accounting treatment of the initial deposit and the final investment. Auditing these elements involved complexities due to the nature and extent of audit effort required to address these matters.   The primary procedures we performed to address this critical audit matter included:     ● Assessing the terms of the agreement to determine if the initial deposit (i) constitutes a purchased call option and (ii) meets the definition of a derivative.     ● Assessing the terms of the agreement to determine if the final investment is accounted for as (i) a debt or equity security, (ii) a variable interest entity requiring consolidation, or (iii) an equity method investment.       /s/ BDO USA, LLP   We have served as the Company's auditor since 2014.   Seattle, Washington March 22, 2023   42 Table of Contents         ATOSSA THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (amounts in thousands, except for par value)                         As of December 31,       2022     2021   Assets                 Current assets                 Cash and cash equivalents   $ 110,890     $ 136,377   Restricted cash     110       110   Prepaid expenses     4,031       2,488   Research and development tax rebate receivable     743       1,072   Other current assets     2,423       1,193   Total current assets     118,197       141,240                     Investment in equity securities     4,700       -   Other assets     635       22   Total Assets   $ 123,532     $ 141,262                     Liabilities and Stockholders' Equity                 Current liabilities                 Accounts payable   $ 2,965     $ 1,717   Accrued expenses     1,059       204   Payroll liabilities     1,525       1,184   Other current liabilities     19       21   Total current liabilities     5,568       3,126                     Total Liabilities     5,568       3,126                     Commitments and contingencies (Note 14)                                       Stockholders' equity                 Series B convertible preferred stock - $ 0.001 par value; 10,000 shares authorized; 1 shares issued and outstanding as of December 31, 2022 and December 31, 2021     -       -   Additional paid-in capital - Series B convertible preferred stock     582       582   Common stock - $ 0.18 par value; 175,000 shares authorized; 126,624 shares issued and outstanding as of December 31, 2022 and December 31, 2021     22,792       22,792   Additional paid-in capital - common stock     250,784       243,996   Accumulated deficit     ( 156,194 )     ( 129,234 ) Total Stockholders' Equity     117,964       138,136   Total Liabilities and Stockholders' Equity   $ 123,532     $ 141,262     The accompanying notes are an integral part of these consolidated financial statements.   43 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS  (amounts in thousands, except for per share amounts)       For the Year Ended December 31,       2022     2021                     Operating expenses                 Research and development   $ 15,083     $ 9,210   General and administrative     12,608       11,311   Total operating expenses     27,691       20,521   Operating loss     ( 27,691 )     ( 20,521 ) Interest income     877       6   Other expense, net     ( 146 )     ( 91 ) Loss before income taxes     ( 26,960 )     ( 20,606 ) Income taxes     -       -   Net loss     ( 26,960 )     ( 20,606 ) Loss per share of common stock - basic and diluted   $ ( 0.21 )   $ ( 0.18 ) Weighted average shares outstanding - basic and diluted     126,624       116,950     The accompanying notes are an integral part of these consolidated financial statements.   44 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in thousands)       Series B Convertible Preferred Stock     Common Stock                                                                                                         Additional                     Additional             Total       Shares     Amount     Paid-in Capital     Shares     Amount     Paid-in Capital     Accumulated Deficit     Stockholders' Equity   Balance at December 31, 2020     1     $ -     $ 621       47,550     $ 8,559     $ 129,887     $ ( 111,899 )   $ 27,168   Cumulative effect of adopted accounting standard     -       -       -       -       -       9,732       3,271       13,003   Issuance of common stock and warrants, net of issuance costs of $ 5,493     -       -       -       41,211       7,418       62,250       -       69,668   Issuance of common stock upon warrant exercise     -       -       -       37,451       6,741       37,077       -       43,818   Conversion of Series B convertible preferred stock to common stock     -       -       ( 39 )     11       2       37       -       -   Common stock issued for option exercises     -       -       -       699       126       1,598       -       1,724   Shares withheld related to cashless exercise of options and taxes     -       -       -       ( 298 )     ( 54 )     ( 1,852 )     -       ( 1,906 ) Compensation cost for stock options granted     -       -       -       -       -       5,267       -       5,267   Net loss     -       -       -       -       -       -       ( 20,606 )     ( 20,606 ) Balance at December 31, 2021     1     $ -     $ 582       126,624     $ 22,792     $ 243,996     $ ( 129,234 )   $ 138,136   Compensation cost for stock options granted     -       -       -       -       -       6,788       -       6,788   Net loss     -       -       -       -       -       -       ( 26,960 )     ( 26,960 ) Balance at December 31, 2022     1     $ -     $ 582       126,624     $ 22,792     $ 250,784     $ ( 156,194 )   $ 117,964       The accompanying notes are an integral part of these consolidated financial statements.   45 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)        For the Year Ended December 31,       2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES                 Net loss   $ ( 26,960 )   $ ( 20,606 ) Adjustments to reconcile net loss to net cash used in operating activities                 Compensation cost for stock options granted     6,788       5,267   Depreciation and amortization     8       23   Disposal of assets     3       -   Changes in operating assets and liabilities:                 Prepaid expenses     ( 1,543 )     ( 674 ) Research and development tax rebate receivable     329       ( 437 ) Other current assets     ( 1,230 )     ( 521 ) Other assets     ( 597 )     -   Accounts payable     1,248       128   Accrued expenses     855       111   Payroll liabilities     341       220   Other current liabilities     ( 2 )     17   Net cash used in operating activities     ( 20,760 )     ( 16,472 )                   CASH FLOWS FROM INVESTING ACTIVITIES                 Purchase of investment in equity securities     ( 4,700 )     -   Purchase of furniture and equipment     ( 27 )     ( 9 ) Net cash used in investing activities     ( 4,727 )     ( 9 )                   CASH FLOWS FROM FINANCING ACTIVITIES                 Proceeds from issuance of common stock and warrants, net of issuance costs     -       69,668   Proceeds from exercise of warrants     -       43,818   Proceeds from exercise of employee stock options     -       391   Payment of taxes related to net-exercise of employee stock options     -       ( 573 ) Net cash provided by financing activities     -       113,304                     NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH     ( 25,487 )     96,823   CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE     136,487       39,664   CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE   $ 111,000     $ 136,487                     SUPPLEMENTAL DISCLOSURES                 Reconciliation of cash, cash equivalents and restricted cash                 Cash and cash equivalents   $ 110,890     $ 136,377   Restricted cash     110       110   Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows   $ 111,000     $ 136,487                     NONCASH INVESTING AND FINANCING ACTIVITIES                 Reclassification of the warrant liability to equity upon adoption of accounting standard   $ -     $ 13,003   Common stock issued upon cashless exercise of stock options   $ -     $ 1,333   Conversion of Series B convertible preferred stock to common stock   $ -     $ 39     The accompanying notes are an integral part of these consolidated financial statements.   46 Table of Contents     NOTE 1: NATURE OF OPERATIONS   Atossa Therapeutics, Inc. (the Company) was incorporated on April 30, 2009,  in the State of Delaware to develop and market medical devices, laboratory tests and therapeutics to address breast health conditions. The Company is currently focused on developing proprietary innovative medicines in areas of significant unmet medical need in oncology, with a current focus on breast cancer and other breast conditions. The Company's fiscal year ends on December 31.   Impact of the Ongoing Coronavirus Pandemic     The ongoing COVID- 19 pandemic may affect the Company’s operations and those of third -parties on which the Company relies, including causing possible disruptions in the supply of the Company’s (Z)-endoxifen, AT- H201 and the pace of enrollment in the Company’s clinical trials. In addition, the COVID- 19 pandemic may affect the operations of the U.S. FDA and other health authorities, including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. As the COVID- 19 pandemic reaches endemic stages, the extent to which it may continue to impact the Company’s operations, including COVID- 19 -related delays or other impacts on the Company’s business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, remains highly uncertain and difficult to predict; however, the Company has not experienced a significant delay in the enrollment or the drug supply for its ongoing and planned clinical studies, including studies of (Z)-endoxifen and AT- H201.       NOTE 2: LIQUIDITY AND CAPITAL RESOURCES   The Company has incurred net losses and negative operating cash flows since inception. For the year ended December  31, 2022, the Company recorded a net loss of $ 26,960 and used $ 20,760  of cash in operating activities. As of December 31, 2022, the Company had $ 110,890  in cash and cash equivalents and working capital of $ 112,629 . The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs, and it believes it will need to continue to raise substantial additional capital to accomplish its business plan over the next several years. Management believes its currently available funding will be sufficient to finance the Company’s operations for at least one  year from the date these consolidated financial statements are issued. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of public or private equity offerings, debt financings or other sources, including potential corporate collaborations, licenses and other similar arrangements. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans.      NOTE 3: SUMMARY OF ACCOUNTING POLICIES   Basis of Presentation      The accompanying consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) and in accordance with the accounting principles generally accepted in the U.S. (GAAP) The accompanying consolidated financial statements include the financial statements of Atossa Therapeutics, Inc. and its wholly-owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation. All amounts have been presented in thousands, except for par value and per share data.    Reclassification   Interest income has been reclassified from prior period amounts to conform to the current year presentation.   Use of Estimates   The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.   Segments   The Company operates as a single segment. Operating segments are identified as the components of an enterprise of which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and in assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the Company-level as a single segment.   Cash   and Cash Equivalents   Cash and equivalents include unrestricted cash and all highly liquid instruments with original maturities of three months or less at date of purchase.   Investments in Equity Securities   The investment in non-marketable securities is carried at cost less any impairment in accordance with Accounting Standards Codification ASC 321 - Equity . This investment does not have a readily determinable fair value, so the Company has elected to measure the investment at cost. At each reporting period, the Company will perform an assessment to determine if it still qualifies for this measurement alternative. The Company considered qualitative impairment factors in determining if there were any signs of impairment. Specifically, the Company considered the adverse change in the general market condition of the industry in which Dynamic Cell Therapies, Inc. (DCT) operates and concerns about the investee’s ability to continue as a going concern, due to negative cash flows from operations. Based on these impairment indicators, the Company performed a fair value measurement as of December 31, 2022.    47 Table of Contents   The resulting valuation concluded that the investment was not impaired, thus, no impairment has been recorded. The assumptions and estimates used to estimate the fair value of the investment include the following information from DCT:     ● Unaudited financial statements;   ● Projected technological developments of DCT;   ● Current fundraising transactions;   ● Current ability of DCT to raise additional financing when needed;   ● Changes in the economic environment which may have a material impact on the operating results of DCT, and;   ● Timing of a deemed liquidation event occurring.   Fair  Value Measurements   The Company records financial assets and liabilities measured on a recurring and non-recurring basis, as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. These fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3  inputs are unobservable inputs based on the Company's assumptions used to measure assets and liabilities at fair value. An asset or liability's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Please also refer to Note 9.     Research   and Development Expenses   Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for the Company's drugs under development, expenses associated with clinical trials and associated salaries and benefits. The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued expenses, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid expense or accrued expense balances at the end of any reporting period. Actual results could differ from the Company’s estimates.   R&D expenses also include an allocation of the CEO's salary and related benefits, including bonus and non-cash stock-based compensation expense based on an estimate of total hours expended on research and development activities. The Company's CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activity.   Stock-based Payments   The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense is based on the estimated grant date fair value and is recognized as an expense over the requisite service period. The Company has made a policy election to recognize forfeitures when they occur.   The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of the price of the Company's common stock, the expected life of the options, an expectation regarding future dividends on the Company’s common stock, and estimation of an appropriate risk-free interest rate. The Company’s expected common stock price volatility assumption is based upon the historical volatility of the Company's stock price. The Company has elected the simplified method for the expected life assumption for stock option grants, which averages the contractual term of the options of ten years with the vesting term, typically one to four years, as the Company does not have sufficient history of option exercise experience. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant is based upon prevailing short-term interest rates over the expected lives of the options.   Income Taxes   The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.   Leases    The Company evaluates all contractual agreements at inception to determine if they contain a lease. Lease liabilities are measured at present value of lease payments not yet paid, using a discounted cash flow model that requires the use of a discount rate, or incremental borrowing rate. The Company does not record right-of-use assets or operating lease liabilities on leases with initial terms of 12 months or less (short-term). All Company leases are short-term in duration; therefore, no right of use assets or lease liabilities are recorded as of December 31, 2022  or 2021.   48 Table of Contents   Foreign Currency Translation and Transactions   The majority of the Company's operations occur in entities that have the U.S. dollar as their functional currency. The one non-U.S. dollar denominated functional currency subsidiary has assets and liabilities translated into U.S. dollars at rates of exchange in effect at the end of the year. Expense amounts are translated using the average exchange rates for the period. Net unrealized gains and losses resulting from foreign currency translation are recorded in Other expense, net in the consolidated statements of operations. The Company had realized losses on foreign currency exchange during the years ended December 31, 2022 and 2021 of $ 122  and $ 72 , respectively, which are included in Other expense, net in the consolidated statements of operations.    Recently Adopted Accounting Pronouncements   On May 3,  2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021 - 04,   Issuer ’ s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options  — a consensus of the FASB Emerging Issues Task Force. The ASU provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. As there were no modifications or exchanges of freestanding equity-classified warrants during the year ended December 31, 2022, the standard did not have an impact on the consolidated financial statements.    On January 1, 2022, the Company adopted ASU No. 2021 - 10,   Annual Disclosure Requirements for Business Entities Receiving Government Assistance   (Topic 832 ) – Disclosures by Business Entities about Government Assistance , which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy. For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The disclosure of the Company's research and development tax rebate receivable is detailed in Note 7.     NOTE 4: INVESTMENT IN EQUITY SECURITIES    On July 1, 2022, the Company entered into a letter agreement (the "Letter Agreement") with Dynamic Cell Therapies, Inc, a U.S. private company that is in the pre-clinical stage of developing novel Chimeric Antigen Receptor (CAR) T-cell therapies based on technology licensed from a leading U.S. cancer treatment and research institution. The Letter Agreement required that up until November 1, 2022,  DCT would (i) negotiate exclusively with the Company for the Company to acquire DCT, and (ii) address certain matters related to personnel, operations and intellectual property. The Company paid $ 2,700 on  July 2, 2022  for the exclusive right to negotiate with DCT.  If by November 1, 2022, a definitive agreement was not reached for the Company to acquire DCT and a specific material adverse event had not occurred, the Company would pay an additional $ 2,000 for a preferred stock equity interest of 19.99 % of the then outstanding total equity in DCT. On  December 23, 2022,  the Company paid $ 2,000 to DCT. In total, the Company paid $ 4,700 to DCT and received Series Seed Preferred Shares representing approximately 19 % of the post-investment outstanding shares of DCT.       The Company reviewed its investment in DCT to determine whether or not the Company has a variable interest in DCT and whether DCT would meet the definition of a variable interest entity in accordance with Accounting Standards Codification (ASC) Topic 810, Consolidation . The Company determined that DCT was a variable interest entity, however, the Company is not the primary beneficiary and does not control DCT. The investment in DCT has been accounted for as an investment in equity securities on the consolidated balance sheet. For equity interests without a readily determinable fair value, an entity may elect to measure these investments at cost minus any impairment. The Company has elected to carry this investment in non-marketable securities at cost less any impairment in accordance with ASC 321 - Equity . At each reporting period, the Company will perform an assessment to determine if it still qualifies for this measurement alternative.   The Company considered qualitative impairment factors in determining if there were any signs of impairment. Specifically, the Company considered the adverse change in the general market condition of the industry in which DCT operates and concerns about the investee’s ability to continue as a going concern, due to negative cash flows from operations. Based on these impairment indicators, the Company performed a fair value measurement as of December 31, 2022. The resulting valuation concluded that the investment was not impaired, thus, no impairment has been recorded as of December 31, 2022. At each reporting period, the Company will continue to evaluate this investment for impairment and will continue to perform qualitative assessments considering potential impairment indicators.    49 Table of Contents   NOTE 5: RESTRICTED CASH   The Company's restricted cash balance of $ 110  as of December 31, 2022  and 2021, consisted entirely of cash pledged as security for the Company’s issued commercial credit cards.     NOTE 6: PREPAID EXPENSES   Prepaid expenses consisted of the following:       December 31,     December 31,       2022     2021   Prepaid research and development   $ 3,480     $ 1,853   Prepaid insurance     387       461   Professional services     130       124   Retainer and security deposits     -       14   Prepaid rent     -       5   Other     34       31   Total prepaid expenses   $ 4,031     $ 2,488       NOTE 7: RESEARCH AND DEVELOPMENT TAX REBATE RECEIVABLE      On May 23, 2017, the Company formed a wholly-owned subsidiary in Australia called Atossa Genetics AUS Pty Ltd. The purpose of this subsidiary is to perform R&D activities, including some of the Company's clinical trials. Australia offers an R&D cash rebate of $0.435 per dollar spent on qualified R&D activities incurred in the country. For entities with over 80% of revenue from passive sources, the rate increases to $0.485 per dollar. The Australian R&D tax incentive program is a self-assessment process, and as such, the Australian Government has the right to review the Company’s qualifying programs and related expenditures for a period of four years. If such a review were to occur, and as a result of the review and failure of a related appeal, a qualified program and related expenditures could be disqualified, and the respective R&D rebates of  $2,028 collected could be recalled with penalties and interest. The Company uses the grant accounting model by analogy to International Accounting Standards (IAS) 20 to account for the cash rebates received from the Australian government.   During the years ended December  31, 2022  and  2021, the Company incurred qualified R&D expenses in Australia of $ 1,546  and $ 1,251 , respectively. The Company collected R&D cash rebates of $ 1,001 and $ 0 , during the years ended December 31, 2022 and 2021, respectively. At  December 31, 2022  and 2021, the Company had a total R&D rebate receivable of $ 743  and $ 1,072 , respectively. The Company records the R&D rebate credit in the period when it incurs the associated R&D cost. As such, the rebate reduced the R&D expense line item on the Consolidated Statements of Operations by $ 728  and $ 498  for the years ended December 31, 2022 and 2021, respectively.       NOTE 8: PAYROLL LIABILITIES   Payroll liabilities consisted of the following:       As of December 31,     As of December 31,       2022     2021   Accrued bonuses   $ 1,060     $ 894   Accrued vacation     224       183   Accrued payroll     241       107   Total payroll liabilities   $ 1,525     $ 1,184       NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS   Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.   The fair value hierarchy is broken down into the three input levels summarized below:   ● Level 1 —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.   ● Level 2 —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the- counter derivatives.   ● Level 3 —Valuations based on unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.   50 Table of Contents      The following tables present the Company’s fair value hierarchy for all its financial assets and liabilities, by main security type, measured at fair value on a recurring basis:   December 31, 2022   Estimated Fair Value     Level 1     Level 2     Level 3   Assets:                                 Money market account   $ 102,681     $ 102,681     $ -     $ -                                                                       December 31, 2021   Estimated Fair Value     Level 1     Level 2     Level 3   Assets:                                 Money market account   $ 51,796     $ 51,796     $ -     $ -     The warrants issued in December  2020 contained certain provisions that may have required the Company to settle the warrants in cash should an event outside the Company’s control occur, and therefore, they were accounted for as liabilities, with changes in the fair values included in net loss for the respective periods. Because some of the inputs to the valuation model were either not observable or were not derived primarily from or corroborated by observable market data by correlation or other means, the warrant liability was classified as Level 3 in the fair value hierarchy. On January 1, 2021, the Company early adopted ASU  No. 2020 - 06, Debt – Debt with Conversion and Other Options (Topic 470 ) and Derivative Hedging - Contracts in an Entity's Own Equity   (Topic 815 ) . Upon adoption, the Company recorded a cumulative adjustment to beginning Stockholders' Equity in the amount of $ 13,003  to reclassify the common stock warrant liability to accumulated deficit and additional paid-in capital.    The following table summarizes the changes in the Company’s Level 3 warrant liability for the year ended December 31, 2021:   Warrant Liability         Beginning balance   $ 13,003   Reclassification of equity upon adoption of accounting standard     ( 13,003 ) Issuance of warrants     -   Change in fair value     -   Ending balance   $ -         NOTE 10: STOCKHOLDERS’ EQUITY   The Company is authorized to issue a total of 185,000 shares of stock consisting of 175,000 shares of common stock, par value $ 0.18 per share, and 10,000 shares of preferred stock, par value $ 0.001 per share. The Company has designated 750 shares of Series A junior participating preferred stock, par value $ 0.001 per share, 4 shares of Series A convertible preferred stock, par value $ 0.001 per share, 25 shares of Series B convertible preferred stock, par value $ 0.001 and 20  shares of Series C convertible preferred stock, par value $ 0.001 per share, through the filings of certificates of designation with the Delaware Secretary of State. No shares of Series A junior participating preferred stock, no shares of Series A convertible preferred stock and no shares of Series C convertible preferred stock were outstanding as of December  31, 2022 or  2021.   On May 19, 2014, the Company adopted a stockholder rights agreement which provides that all stockholders of record on May 26, 2014, received a non-taxable distribution of one preferred stock purchase right for each share of the Company’s common stock held by such stockholder. Each right is attached to and trades with the associated share of common stock. The rights will become exercisable only if one of the following occurs: ( 1 ) a person becomes an “Acquiring Person” by acquiring beneficial ownership of 15 % or more of the Company’s common stock (or, in the case of a person who beneficially owned 15% or more of the Company’s common stock on the date the stockholder rights agreement was executed, by acquiring beneficial ownership of additional shares representing 2.0 % of the Company’s common stock then outstanding (excluding compensatory arrangements)), or ( 2 ) a person commences a tender offer that, if consummated, would result in such person becoming an Acquiring Person. If a person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person and certain related parties, to purchase a number of shares of the Company’s common stock with a market value that equals twice the exercise price of the right. The initial exercise price of each right is $ 15.00 , so each holder (other than the Acquiring Person and certain related parties) exercising a right would be entitled to receive $ 30.00 worth of the Company’s common stock. If the Company is acquired in a merger or similar business combination transaction at any time after a person has become an Acquiring Person, each holder of a right (other than the Acquiring Person and certain related parties) will be entitled to purchase a similar amount of stock of the acquiring entity.    2021 Financing Transactions   On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 23,850  shares of Company common stock, par value $ 0.18 per share and warrants to purchase 17,888  shares of common stock. The combined purchase price for one share of common stock and a warrant to purchase 0.75 shares of common stock was $ 1.055 . Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5 -year anniversary of the date of issuance and have an exercise price of $ 1.055 per share. The common stock and warrants have been registered under the Securities Act of 1933, as amended. The offering closed on January 8, 2021, with net proceeds to the Company from the offering of $ 23,300  after deducting fees and expenses.   On March  22, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 17,361 shares of our common stock, par value $ 0.18 per share. Concurrently with the offering, and pursuant to the purchase agreement, the Company also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 13,021  shares of common stock. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock was $ 2.88 . Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5 -year anniversary of the date of issuance.  The net proceeds to the Company from the offering and the private placement were $ 46,400 , after deducting fees and expenses.   51 Table of Contents   Series B Convertible Preferred Stock   Conversion.  Each share of Series B convertible preferred stock is convertible at the Company's option at any time on or after the first anniversary of the closing of the rights offering, or at the option of the holder at any time, into the number of shares of our common stock determined by dividing the $ 1,000 stated value per share of the Series B convertible preferred stock by a conversion price of $ 3.52 per share. In addition, the conversion price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations or reclassifications. Subject to limited exceptions, a holder of the Series B convertible preferred stock will not have the right to convert any portion of the Series B convertible preferred stock to the extent that, after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to its conversion.   Fundamental Transactions.  In the event the Company effects certain mergers, consolidations, sales of substantially all of its assets, tender or exchange offers, reclassifications or share exchanges in which its common stock is effectively converted into or exchanged for other securities, cash or property, the Company consummates a business combination in which another person acquires 50 % of the outstanding shares of our common stock, or any person or group becomes the beneficial owner of 50 % of the aggregate ordinary voting power represented by our issued and outstanding common stock, then, upon any subsequent conversion of the Series B convertible preferred stock, the holders of the Series B convertible preferred stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series B convertible preferred stock.   Dividends.  Holders of Series B convertible preferred stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of common stock.   Voting Rights.  Except as otherwise provided in the certificate of designation or as otherwise required by law, the Series B convertible preferred stock has no voting rights.   Liquidation Preference .  Upon the Company's liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series B convertible preferred stock will be entitled to receive out of the Company's assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series B convertible preferred stock were fully converted (disregarding for such purpose any conversion limitations under the certificate of designation) to common stock, which amounts shall be paid pari passu with all holders of common stock.   Redemption Rights.  The Company is  not obligated to redeem or repurchase any shares of Series B convertible preferred stock. Shares of Series B convertible preferred stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous provisions.   2021 and 2020 Warrants     The terms and conditions of the warrants are as follows:   Exercisability . Each warrant is exercisable at any time and will expire between 4 and 4.5 -years from the date of issuance. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below. The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our assets, or other similar transaction, the holders of warrants shall, at the option of the Company, be required to exercise the warrants immediately prior to the closing of the transaction, or such warrants shall automatically expire. Upon such exercise, the holders of warrants shall participate on the same basis as the holders of common stock in connection with the transaction.   Cashless Exercise . If at any time there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.   Exercise Price . Each warrant represents the right to purchase one share of common stock. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in no event shall the limitation exceed 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.   Transferability . Subject to applicable laws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax liability that may arise as a result of the transfer.   Exchange Listing . The Company does not intend to apply to list the warrants on any securities exchange or recognized trading system.   Rights as Stockholder . Except as set forth in the warrant, the holder of a warrant, solely in such holder’s capacity as a holder of a warrant, will not be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.     52 Table of Contents        Warrants Outstanding   As of December  31, 2022, warrants to purchase 21,515  shares of common stock were outstanding including:         Outstanding Warrants to Purchase Shares     Exercise Price   Expiration Date December 2020 warrants     6,490     $ 1.00   December 11, 2024-June 21, 2025 January 2021 warrants     4,500     $ 1.055   July 8, 2025 March 2021 warrants     10,525     $ 2.88   September 22, 2025       21,515               Warrant Activity   There were no warrant exercises during the year ended December 31, 2022. During the year ended 2021, the Company received $ 43,818  from the exercises of warrants. The 2021 warrant exercises resulted in the reduction of 37,451  warrants, and the issuance of  37,451  shares of common stock. On May  30, 2022, all 762 of the warrants issued in May  2018  expired, unexercised, with an exercise price of $ 4.05 per share.    Conversion of Convertible Preferred Stock   During the year ended December 31, 2022, there were  no conversions of Series B convertible preferred stock. During the year ended  December 31, 2021,  certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 0.039 of their shares into  11  shares of the Company's common stock based on the conversion ratio of  284 shares of common stock for each share of Series B convertible preferred stock.       NOTE 11: NET LOSS PER SHARE      The Company follows the  two -class method when computing net loss per share as the Company has issued warrants and preferred stock that meet the definition of participating securities. The  two -class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The  two -class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.   Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividends. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of potential future exercises of outstanding stock options and common stock warrants. Because the inclusion of potential common shares would be anti-dilutive for all periods presented, they have been excluded from the calculation.     The Company’s common stock warrants and preferred stock contractually entitles the holders of such securities to participate in dividends but do not contractually require the holders of such securities to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2022, and 2021.      The following table summarizes the Company’s calculation of net loss per common share:       Year Ended December 31,       2022     2021   Numerator                 Net loss   $ ( 26,960 )   $ ( 20,606 )                   Denominator                 Weighted average common shares outstanding used to compute net loss per share, basic and diluted     126,624       116,950   Net loss per share of common stock, basic and diluted:   $ ( 0.21 )   $ ( 0.18 )   The following table sets forth the weighted average number of potential common shares excluded from the calculation of net loss per diluted share, because including them would be anti-dilutive:                         Year Ended December 31,       2022     2021   Options to purchase common stock     12,990       9,036   Series B convertible preferred stock     165       171   Warrants to purchase common stock     21,826       24,144         34,981       33,351     53 Table of Contents     NOTE 12: INCOME TAXES   The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The Company did not record an income tax benefit for its losses incurred for the years ended  December 31, 2022  or 2021, due to uncertainty regarding utilization of its net operating loss carryforwards and due to its history of losses.   The benefit for income taxes differs from the benefit computed by applying the federal statutory rate to loss before income taxes as follows:       Year Ended December 31,       2022     2021   Expected federal income tax benefit   $ ( 5,662 )   $ ( 4,327 ) Disallowed R&D expenses     351       -   Non-taxable R&D rebate     ( 156 )     -   Other permanent items     214       81   Return to provision     862       ( 100 ) Stock-based compensation adjustment     213         Foreign rate differential     ( 270 )     -   Other     27       -   Recognition of foreign net operating loss carryforwards     -       ( 557 ) Effect of change in valuation allowance     4,421       4,903   Actual federal income tax benefit   $ -     $ -     The components of net deferred tax assets and liabilities were as follows:       As of December 31,       2022     2021   Deferred tax assets                 Accrued bonus     222       -   Accrued vacation     47       38   Stock-based compensation     4,067       3,007   Capitalized R&D expenses     3,155       -   Intangible assets, net     315       382   Net operating loss carryforwards     11,522       11,511   Other     -       -   Valuation allowance     ( 19,327 )     ( 14,937 ) Deferred tax asset   $ 1     $ 1                     Deferred tax liabilities                 Fixed assets   $ ( 1 )   $ ( 1 ) Net deferred tax asset   $ -     $ -     Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and the Company's pre-revenue status, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and other deferred tax assets will not be realized and, as a result, a full valuation allowance has been recorded against the Company’s deferred income tax assets. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382. In general, an “ownership change,” as defined by Section 382, results from a transaction or series of transactions over a three -year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the net operating loss carryforwards before utilization. Since the Company’s initial public offering, ownership changes have triggered a Section 382 limitation, which limits the ability to utilize net operating loss carryforwards.   The Company has incurred net operating losses from inception. At December 31, 2022, the Company had domestic federal net operating loss carryforwards of $ 99,047  and foreign net operating loss carryforwards of $ 1,514 . In previous years, the Company completed public offerings, which triggered ownership changes under Section 382. The Company believes that as of December 31, 2022, the gross net operating loss carryforwards is limited to $ 52,700 , which are available to reduce future taxable income. Federal net operating loss carryforwards generated through December 31, 2017 expire at various dates beginning  2029 through 2038, while federal net operating loss carryforwards generated during or after 2018 do not expire. Foreign net operating losses do not expire. The Company recorded a valuation allowance against all of its net deferred tax assets of $ 19,327  and $ 14,937  as of as of December 31, 2021, respectively, for a net increase of $ 4,390  from 2021  to 2022  and a net increase of $ 4,903  from 2020  to 2021.   54 Table of Contents   Historically, Section 174 allowed taxpayers to deduct R&D expenses in the same year incurred and companies that engage in research-based activities relied on full expensing as a significant cost recovery mechanism. The Tax Cut and Jobs Act (TCJA) resulted in significant changes to the treatment of R&D expenses under Section 174.  For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenses paid or incurred during the year in the regular course of business. R&D expenses incurred in the U.S. during the year have been amortized over a five -year period and R&D expenses incurred in Australia during the year have been amortized over a fifteen -year period. All direct R&D expenses as classified on the Consolidated Statement of Operations have been capitalized and indirect R&D expenses included in G&A on the Consolidated Statement of Operations have been capitalized based on R&D compensation as a percent of total compensation other than legal patent expenses which have been fully capitalized.   The Company files income tax returns in the U.S. and Australia. The Company is subject to tax examinations for the 2016  tax year and beyond. The Company has no unrecognized tax positions and does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties related to unrecognized tax positions. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the consolidated financial statements as general and administrative expense.     NOTE 13: CONCENTRATION OF CREDIT RISK   Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250. As of December 31, 2022  and 2021, the Company had $ 110,647 and $ 136,185 , respectively, in excess of the FDIC insured limit.     NOTE 14: COMMITMENTS AND CONTINGENCIES   Lease Commitments   The Company evaluates all contractual agreements at inception to determine if they contain a lease. Lease liabilities are measured at present value of lease payments not yet paid, using a discounted cash flow model that requires the use of a discount rate, or incremental borrowing rate. Leases with a term of 12 months or less are considered short term operating leases and no asset or liability is recognized.   The Company's operating lease assets consist of an office lease and a copier system lease. The Company's office lease expired February 28, 2022.  On March 1, 2022, the Company entered into a new short-term operating lease for office space to pay monthly rent of $ 1  for a term of 12 months. The Company's copier system lease expired in October 2021 and was not renewed. The Company had lease expense under short term leases of $ 15  and $ 26  during the year ended December 31, 2022, and 2021, respectively.    Litigation and Contingencies    The Company is subject to legal proceedings and claims that arise in the normal course of business. The Company believes that these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on its financial position, results of operations or cash flows.   55 Table of Contents     NOTE 15: STOCK BASED COMPENSATION      On March  24, 2020, the Board of Directors approved the adoption of the 2020 Stock Incentive Plan (the 2020  Plan) to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company.  No awards may be granted under the 2020 Plan after the date that is 10 years from the date of stockholder approval. An aggregate of 3,000  shares were initially reserved for issuance in connection with awards granted under the 2020  Plan. On  May 14, 2021, the stockholders approved an additional  15,000  shares available for issuance under the 2020 Plan. There were  8,251  options available for future grants under the 2020 Plan as of December 31, 2022.   On September 28, 2010, the Board of Directors approved the adoption of the 2010 Stock Option and Incentive Plan (the 2010 Plan) to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company. Awards of incentive options could be granted under the 2010 Plan until September 2020. Shares may no longer be granted under this plan.    The Company granted  4,079  and 3,819 options to purchase shares of common stock to employees and directors during the years ended December 31, 2022  and  2021, respectively. The weighted average grant date fair value of options granted during 2022  and 2021  was $ 0.96  and $ 2.56 , respectively. There were 699  options exercised during the year ended December  31, 2021, at a weighted average exercise price of $2.46. The Company issued 298  new common shares upon net exercise of these options.  No options were exercised during the year ended December 31, 2022.   The fair values of stock options granted were calculated using the Black-Scholes option-pricing model applying the following assumptions:       Year Ended December 31,       2022     2021   Risk-free interest rate     1.86% - 3.56%       0.89% - 1.08%   Expected term (in years)     5.19 - 6.11       5.31 - 6.17   Dividend yield     -       -   Expected volatility     103% - 128%       122% - 130%       Compensation costs associated with the Company’s stock options are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period.   Accordingly, the Company recognized stock-based compensation expense, which was included in the following line items, in the Consolidated Statements of Operations:       Year Ended December 31,       2022     2021   General and administrative   $ 4,395     $ 3,676   Research and development     2,393       1,591   Total stock compensation expense   $ 6,788     $ 5,267     Options issued and outstanding as of December 31, 2022, and their activities during the year ended 2022 are as follows:     Number of Underlying Shares     Weighted- Average Exercise Price Per Share Weighted- Average Contractual Life Remaining in Years   Aggregate Intrinsic Value Outstanding as of January 1, 2022   10,027     $ 2.82           Granted   4,079       1.13       $ 51 Forfeited   (200)       0.91               Exercised                                        -                                             -               Expired   -       -         - Outstanding as of December 31, 2022   13,906     $ 2.35   7.82   $ - Exercisable as of December 31, 2022   10,283     $ 2.59   7.41   $ - Vested and expected to vest   13,906     $ 2.35   7.82   $ -   On December 31, 2022, there were 3,623  unvested options outstanding, and the related unrecognized total compensation cost associated with these options was $ 4,157 . This expense is expected to be recognized over a weighted-average period of 1.04  years.       56 Table of Contents               EXHIBIT INDEX            Incorporated by Reference Herein Exhibit No.   Description   Form   Date               3.1   Amended and Restated Certificate of Incorporation   Amendment No.3 to Registration Statement on Form S-1, as Exhibit 3.2   June 11, 2012               3.2   Certificate of Amendment to Amended and Restated Certificate of Incorporation   Current Report on Form 8-K, as Exhibit 4.1   August 26, 2016               3.3   Certificate of Amendment to Amended and Restated Certificate of Incorporation   Current Report on Form 8-K, as Exhibit 4.1   April 23, 2018               3.4   Certificate of Amendment to Amended and Restated Certificate of Incorporation   Current Report on Form 8-K, as Exhibit 3.1   January 7, 2020               3.5   Amended and Restated Bylaws   Current Report on Form 8-K, as Exhibit 3.2   January 7, 2020               3.6   Certificate of Designation Preferences, and Rights of Series A Junior Participating Preferred Stock   Current Report on Form 8-K, as Exhibit 3.1   May 22, 2014               3.7   Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock   Quarterly Report on Form 10-Q, as Exhibit 3.1   May 11, 2017               3.8   Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock   Current Report on Form 8-K, as Exhibit 3.1   May 31, 2018               3.9   Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock    Current Report on Form 8-K, as Exhibit 3.1   December 14, 2020               4.1   Specimen Common Stock Certificate   Amendment No. 2 to Registration Statement on Form S-1, as Exhibit 4.1   May 21, 2012               4.2   Form of Warrant   Amendment No.1 to Registration Statement on Form S-1 as Exhibit 4.3   April 23, 2018               4.3   Form of Warrant   Current Report on Form 8-K, as Exhibit 4.1   December 14, 2020               4.4   Form of Warrant   Current Report on Form 8-K, as Exhibit 4.1   December 21, 2020               4.5   Form of Warrant   Current Report on Form 8-K, as Exhibit 4.1   January 8, 2021               4.6   Form of Warrant   Current Report on Form 8-K, as Exhibit 4.1   March 23, 2021               4.6   Form of Senior Indenture   Registration Statement on Form S-3, as Exhibit 4.1   September 2, 2020               4.7   Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934   Annual Report on Form 10-K, as Exhibit 4.16    March 26, 2020                 57 Table of Contents   10.1#   Restated and Amended Employment Agreement with Steven Quay dated September 27, 2010   Registration Statement on Form S-1, as Exhibit 10.3   February 14, 2012               10.2#   Amended and Restated Employment Agreement with Kyle Guse dated May 18, 2016   Current Report on Form 8-K, as Exhibit 10.1   May 20, 2016               10.3#   Form of Indemnification Agreement   Filed herewith                   10.4#   2010 Stock Option and incentive Plan, as amended   Current Report on Form 8-K, as Exhibit 4.2   January 15, 2019               10.5#   Form of Non-Qualified Stock Option Agreement for Employees   Amendment No. 3 to Registration Statement on Form S-1, as Exhibit 10.8    June 11, 2012               10.6#   Form of Non-Qualified Stock Option Agreement for Non-Employee Directors   Amendment No. 3 to Registration Statement on Form S-1, as Exhibit 10.9   June 11, 2012               10.7#   Form of Restricted Stock Award Agreement   Amendment No.3 Registration Statement on Form S-1, as Exhibit 10.13   June 11, 2012               10.8#   Form of 2019 Option Award Agreement   Current Report on Form 8-K, as Exhibit 4.1   January 15, 2019               10.9#   2020 Stock Incentive Plan, as amended   Registration Statement on Form S-8, as Exhibit 99.1   March 31, 2021               10.10#   Form of ISO Option Award Agreement   Quarterly Report on Form 10-Q, as Exhibit 4.1   May 13, 2020               10.11#   Form of Option Award Agreement   Current Report on Form 8-K, as Exhibit 4.1   April 13, 2020               21.1   List of Subsidiaries   Filed herewith                   23.1   Consent of BDO USA, LLP   Filed herewith                   24.1   Powers of Attorney (included in signature page of this Form 10-K)   Filed herewith                    31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    Filed herewith                   31.2   Certification Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    Filed herewith                   32.1   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act    Furnished herewith                   32.2   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act    Furnished herewith                   101.INS   Inline XBRL Instance Document                       101.SCH   Inline XBRL Taxonomy Extension Schema Document                       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                       101.LAB   Inline XBRL Taxonomy Extension Labels Linkbase Document                       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document                       104   Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)           # Indicates management contract or compensatory plan, contract or agreement.   58 Table of Contents   SIGNATURES   Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer, a corporation organized and existing under the laws of the State of Delaware, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in the City of Seattle, State of Washington, on March 22, 2023.     Atossa Therapeutics, Inc.         By:  /s/ Steven C. Quay     Steven C. Quay, M.D., Ph.D.     Chairman, Chief Executive Officer and President       POWER OF ATTORNEY   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Steven C. Quay and Kyle Guse and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.   Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.   Signature   Office(s)   Date           /s/ Steven C. Quay   Chairman, Chief Executive   March 22, 2023 Steven C. Quay, M.D., Ph.D.   Officer and President         (Principal Executive Officer)               /s/ Kyle Guse   Chief Financial Officer, General Counsel and Secretary   March 22, 2023 Kyle Guse   (Principal Financial and         Accounting Officer)               /s/ Richard I. Steinhart   Director   March 22, 2023 Richard I. Steinhart                   /s/ Shu-Chih Chen   Director   March 22, 2023 Shu-Chih Chen, Ph.D.                   /s/ Gregory Weaver   Director   March 22, 2023 Gregory Weaver                   /s/ Stephen J. Galli   Director   March 22, 2023 Stephen J. Galli, M.D.                   /s/ H. Lawrence Remmel   Director   March 22, 2023 H. Lawrence Remmel           59